Q3. There has been a persistent deficit budget year after year. Which action/actions of the following can be taken by the Government to reduce the deficit?
- Reducing revenue expenditure
- Introducing new welfare schemes
- Rationalizing subsidies
- Reducing import duty
Select the correct answer using the code given below.
a) 1 only
b) 2 and 3 only
c) 1 and 3 only
d) 1, 2, 3 and 4
The correct answer is 1 and 3 only.
- The fiscal deficit
- It is defined as the difference between total revenue and total expenditure.
- Subsidies are a significant component of government expenditures, and reducing them reduces the fiscal deficit. Hence, statement 3 is correct.
- Revenue expenditure neither creates assets nor reduces the liability of the government. Unnecessary revenue expenditure increases the fiscal deficit. Therefore, reducing revenue expenditure has a very large effect on the fiscal deficit. Hence, statement 1 is correct.
- Introducing new welfare schemes neither creates assets nor reduces the liability of the government and will further enhance the fiscal deficit. Hence, statement 2 is not correct.
- Reducing import duty will reduce tax revenue and thus increases the fiscal deficit. Hence, statement 4 is not correct.
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